New Zealand Exports Decline, Adding to Signs of a Recession

By Tracy Withers

Sept. 10 (Bloomberg) -- New Zealand's exports fell for a second straight quarter as a drought crimped milk production, adding to signs the economy has fallen into recession for the first time in 10 years.

Export volumes decreased 3.7 percent from the first quarter, when they dropped 3.9 percent, Statistics New Zealand said in Wellington today. Overseas shipments make up one-third of the $105 billion economy. Imports increased 5.4 percent.

Drought, record-high interest rates and a housing slump have pushed the economy into its first recession since 1998, the Treasury Department said this week. Reserve Bank Governor Alan Bollard will probably cut interest rates for a second time in seven weeks tomorrow as weak demand eases inflation pressure, according to all 15 economists surveyed by Bloomberg News.

``Net exports will be a drag on economic growth,'' said Shamubeel Eaqub, an economist at Goldman Sachs JBWere Ltd. in Auckland. ``GDP data are very likely to confirm a recession. In our view, current monetary policy is too tight.''

New Zealand's dollar bought 66.62 U.S. cents at 11:45 a.m. in Wellington from 66.78 cents immediately before the report. The currency has slumped 16 percent in the past six months, the worst performer of 16 major currencies tracked by Bloomberg.

Gross domestic product contracted 0.3 percent in the first quarter. Second-quarter GDP figures will be published on Sept. 26. Economists will complete their estimates following a Sept. 15 report on New Zealand manufacturing.

Retail, Construction

Retail spending fell 1.5 percent in the second quarter, the biggest decline in 13 years. Construction slumped 5.6 percent in the same period, according to a government report this week.

Dry weather began in October and extended until March with some parts of the country getting the least rain in a century in January, according to the National Climate Center. Farmers produced less milk, prompting Fonterra Cooperative Group Ltd., the world's largest dairy exporter, to announce in February it may restrict new export orders.

Dairy exports declined 17 percent last quarter, led by milk powder and cheese, today's report showed. Dairy shipments make up about one-fifth of New Zealand exports.

Purchases of aircraft, cars and gasoline buoyed imports in the quarter. Imports of consumption goods rose 1.4 percent led by food. Purchases of intermediate goods used by industry advanced 1 percent, led by diesel.

Import prices rose 4.8 percent, the most in two years, bolstered by fuel and food. Exports prices rose by 4.4 percent amid a decline in milk powder prices that offset meat, aluminum and crude oil.

The terms of trade index, which measures the amount of imports New Zealand can buy from a fixed quantity of exports, fell 0.5 percent from a record-high in the first quarter.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.